Disconnect: The Problem with Wireless

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Will this be the technological Summer of Love? The wireless division of telecom company Sprint certainly hopes so. The company has unleashed a massive marketing campaign designed to educate and excite consumers and businesspeople about the possibilities of its so-called 3G technology. This “third generation” of wireless transmission can now reach speeds of 144 kilobits per second (kbps), which is 10 times faster than today’s typical second-generation digital phone service. It’s expected to eventually reach speeds of 3 megabits per second (Mbps) — more than twice as fast as a T1 desktop Internet connection. The advent of these higher speeds is widely seen as paving the way for entirely new uses for cell phones, personal digital assistants (PDAs), pocket computers, and other devices.

And yet, the American talent for marketing notwithstanding, it’s an open question as to whether Sprint can rally excitement for a technology that is both overdue and underappreciated. Most industry observers had predicted that the third generation of wireless technology would have been a fait accompli by now. Instead, while most of Europe and Asia march confidently into the wireless future, the United States stumbles along. A number of factors have slowed the rollout of 3G service, but even if all those hurdles were suddenly cleared, it’s debatable whether consumers or businesses would even notice, let alone cheer.

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Some analysts believe that’s a shame. Wireless transmissions that are fast enough to beam large volumes of data quickly to anywhere could, they say, transform many aspects of American business life. According to Ray Jodoin, group manager and principal analyst for wireless technology at In-Stat/MDR: “Fast, accurate communications is vital to what most companies are all about. You wouldn’t want your accounting department using DOS-based PCs from the early 1980s. That’s where wireless is today, and businesses should be concerned.”

Companies are more likely to be confused, because wireless technologies encompass a huge number of devices, standards, and integrator issues, all of which are evolving quickly and contentiously. Sprint is devoting a large part of its marketing push to educating potential customers about the possibilities created by faster wireless-transmission rates, but also risks adding to the confusion because its claim that it is the first nationwide carrier to offer 3G services has come under fire. An arcane debate rages over what constitutes “true” 3G, with some analysts claiming that until the Federal Communications Commission (FCC) awards licenses in the 2 Ghz bandwidth, carriers’ technological tweaks don’t really count: they may achieve “peak” speeds of 144 kbps under ideal conditions, but typical performance will fall well below that rate.

“It’s ultimately about having a bigger pipe,” Jodoin says. “The rest of the world has it, but we don’t.” Sprint counters that it’s going about transforming the spectrum available today from a “dumb pipe” to a “smart pipe” through a number of technological improvements, notably an underlying technology known as 1XRTT. Spectrum in the 2 Ghz range is currently used by the military and the Catholic church (for educational broadcasts); neither entity is happy about a perceived “spectrum grab” on the part of wireless carriers. There are also serious squabbles over how the FCC should auction off the spectrum, if it even makes it available. Under those circumstances, it’s no wonder that carriers look for ways to boost the capacity of the spectrum they do have available.

But even if one grants Sprint’s argument that its latest technology is fast enough to be deemed 3G — or even if the FCC logjam were to be magically resolved — high-speed wireless would still face several daunting obstacles: high costs, insufficient coverage, inadequate and ever-changing handheld devices, and a serious disconnect between what carriers offer and what business users want.

Wrong Numbers

That disconnect takes two forms: price and purpose. Current prices for sending data over wireless networks are simply too high to attract much usage. “The pricing plans are terrible,” says Michael King, an analyst at Gartner. “The carriers truly don’t understand their customers.” Carriers will almost certainly pay huge sums to the FCC (via auctions) for additional spectrum, and they’ll need to recoup the investment somehow. Even in Asia and Europe, where advances in wireless technology face fewer obstacles, the massive sums paid for spectrum have raised serious questions about the economic viability of many carriers. Despite those pressures, most analysts expect prices to fall sharply as carriers attempt to woo a mass audience.

While they’re adjusting their fee structures, carriers will also have to reposition their services in a context that businesses will respond to. In King’s view, the current obsession with “speeds and feeds,” or how fast voice and data traffic will travel and via what means — Sprint and Verizon use an underlying technology known as CDMA, while AT&T Wireless, Cingular, and VoiceStream use a thus-far incompatible system known as GSM — must give way to an emphasis on applications. “3G won’t sell itself,” says King. “There are a lot of interesting applications to build excitement around, but it hasn’t been the overnight success it was once expected to be, and it never will be. It’s evolutionary.”

To its credit, Sprint is beginning to make this transition. The company has created a traveling road show that will visit dozens of locations this summer; it will emphasize the potential uses of 3G technology rather than the obscure aspects of the speeds-and-feeds issue. And a partnership with Borland Software, which provides solutions for application integration, is just one element of a new emphasis on tailoring the technology to suit business users.

Tentative Steps

Some business customers, of course, don’t need to walk through a technology expo in order to understand what high-speed wireless data transfer can do. Companies like FedEx and United Parcel Service, King says, are actually ahead of the carriers in their ability to redesign or completely transform business processes around wireless technologies. But they are the exceptions. Most are either dabbling with the technology or waiting for the smoke to clear. Some, like Celanese Chemicals, have adopted a fits-and-starts approach, sensing opportunity but proceeding cautiously.

Celanese began exploring wireless in early 2000, just as it was devising an E-business strategy, but decided to focus on wiring its desktops first. In 2001 it returned to wireless, developing a small pilot project for its sales reps that would allow them to use a PDA to retrieve information from the company’s database. But that project required the involvement of several third parties, which was costly, and neither the services provided by telecom carriers nor the devices produced by PDA or portable-computer makers were adequate. So when the economy took a dip in 2001, the project was shelved again.

By last October, however, wireless transmission speeds had improved, service areas had expanded, the devices (in this case, the iPaq from Compaq Computer Corp.) had become more functional, and a key software vendor had incorporated wireless capabilities into its product, eliminating the need to buy a middle layer of software from another firm. By January of this year, Celanese’s North American sales force was toting handheld computers to sales calls, ones that allowed sales reps to access the company’s Web pages and check on order status, customer account information, and more.

“Opening a laptop in front of a client is intimidating,” says Bill Schmitt, director of business enablement for chemicals at Celanese. “But a handheld computer allows them to prepare for calls and answer customer questions very conveniently — plus, it’s instant-on.” As in most commodity businesses, Celanese relies on “dynamic pricing” that is unique to each customer and is determined by market conditions. The ability to reach into the transactional database for a real-time snapshot of a current customer relationship is extremely useful.

And because Celanese’s early efforts are built around access to data, Schmitt is interested in what the higher speeds of 1XRTT and (other) 3G options will make possible. But he’s not champing at the bit. “We’re a global company interested in expanding in Europe and elsewhere,” he says. “As such, we’d like to get away from these fragmented wireless technologies and see a standard emerge so that your devices work everywhere.”

Design Gaps

Schmitt would also like to see better devices. “Sometimes you still need a laptop,” he says, “because it’s still the only way to enter and view large amounts of data.” Manufacturers of handheld devices are trying to make them suitable for data-intensive chores, but Schmitt says so far every design forces significant compromise.

“We need a better form factor [hardware],” agrees Steve Jarvis, staff vice president for E-commerce at Alaska Airlines. The Seattle-based company offers a number of services to customers who use wireless devices (see “An Easy Call,” below), and would like to do more, but Jarvis says that current PDAs and similar devices create limitations because they are optimized either for voice or data but not both. “In our case, we need convergence,” he says. “We want customers to be able to make a voice request for information, but receive it as data so they can scroll through it or print it. No one wants to listen to flight information and have to write it down or remember it.”

Jarvis says he’s almost indifferent to the advent of 3G, because it won’t automatically solve the Catch-22 ensnaring high-speed wireless services. “If it triggers mass usage, then I’m all for it,” he says. “But you need compelling content to drive mass usage, and you need mass usage to justify the creation of compelling content, so we have a stalemate.”

What would help, analysts say, is convergence of another kind: among wireless carriers. “If the U.S. companies that use CDMA were to merge,” Jodoin theorizes, “and those that use GSM were to merge, then, because each has partnerships with Asian or European carriers, true global coverage would become a reality.” Business customers would be happy to pay global roaming charges in exchange for true global coverage. That would provide a much-needed revenue stream that could allow carriers to cut rates for data transmission, which could prompt businesses to put the technology to better use.

Some sort of carrier consolidation seems inevitable. Carrier bankruptcies also loom, according to a recent forecast from PricewaterhouseCoopers, and that may force business customers to proceed with even more caution. PwC says that fully 15 percent of the companies on its bankruptcy/restructuring watch list are telecom firms, including large emerging carriers. The company predicts a recovery in late 2002 or early 2003, driven in part by consolidations and scaled-back expansion plans. Deciding whether and when to adopt the technology will be something each company will have to decide based on its needs and perceived opportunities.

“We don’t expect customers to flock to 3G wireless,” admits Jason Guesman, director of business marketing for Sprint’s wireless division. The company’s current ad blitz may, however, raise awareness of and clarify issues surrounding the new higher-speed services. And businesses may welcome the thought of a new technology that can be deployed at a leisurely pace. “E-business and ERP represented two huge IT investing binges,” says Traigh Groover, director of mobile business solutions at Clarkston Consulting. “Wireless isn’t as massive. It can be selectively deployed and provide a quick return.”

So far that hasn’t quickened the pulses of many business customers. As Sprint gets its act together and takes it on the road, and as other carriers do the same, that may change. But not overnight.

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Sidebar: An Easy Call

High rates for wireless data transmission aren’t the only economic impediment to wider adoption. Companies also have to modify their Web sites, databases, and other IT infrastructures to facilitate mobile connections. When Alaska Airlines decided to make flight schedule, check-in, and other information and procedures available to its fliers, staff vice president for E-commerce Steve Jarvis wanted a low-cost solution. “We spend $2 million annually on our Web site,” he says, “which is essential to almost all our customers. But only a small percentage [of our customers] are interested in accessing that information through wireless devices, so we couldn’t justify a big internal commitment.”

The company signed on with Everypath Inc., a San Jose, California-based provider of mobile-applications gateway software. Everypath’s technology automatically translates Web pages, databases, and other applications so that they can be displayed on a variety of handheld devices. Everypath “scrapes” information from the airline’s Web site and delivers it to users. To date, the functionality is limited to the “pull side”: customers request the information they want. But Jarvis sees significant opportunity in “push” technology. Users of wireless devices could be notified of canceled or delayed flights and apprised of alternatives, which they could book via the wireless device. “That will take a lot of work,” says Jarvis, “but the payback in terms of customer service and customer loyalty could be enormous.”

While Everypath does sell software directly to clients, in the case of Alaska Airlines it functions more as a “WASP,” or wireless applications service provider, an emerging outsourcing segment that has already given rise to more than 150 companies.